Monday, June 24, 2013

Gold’s Collapse Is Not Done

New York, Jun.24, swing trading .- If you think the past two days have been rough for the stock market, you must not have had any exposure to gold. For that matter, if you thought the gold bugs have had it rough, you didn’t notice that silver’s been absolutely shellacked this week.

The culprit? Ben Bernanke’s decision to start thinking about tapering off the Federal Reserve’s stimulus efforts. Namely, he’s now talking about cutting back on the $85 billion the Fed’s currently spending each month to buy U.S. Treasuries, a scheme that keeps interest rates low across the board.

But the real question is, how much more pain must gold go through before hitting a bottom and becoming buy-worthy again?

It Was Never About the Fundamentals

Truth be told, the last four years or so have been strange ones for gold.

Following the 2008 global economic implosion, the Federal Reserve and other central banks began to inject billions into their respective economies in an effort to restart growth. Those easy-and-cheap dollars were supposed to bring about a massive wave of inflation … but it never happened.

A sovereign debt fiasco that started in Greece but eventually bled into the rest of Europe was supposed to bring about a currency exchange meltdown, making gold the only true currency worth owning (particularly if the U.S. dollar implodes as was expected) … that never happened either.

Finally, if nothing else, gold’s been going higher since 2008 because many folks believed we never really escaped the recession. Since gold is in many ways an anti-stock-market trade, gold was simply seen as a smart way to play the re-entry into the bear market … of course, that too never happened.

Sure, gold had a great run, all the way through the third quarter of 2012. But with none of the reasons to own gold ever panning out, it’s no real surprise that gold’s been weak since the fourth quarter of last year.

The bottom line is that gold never rallied on its fundamentals. Gold rallied on speculation. That’s good news, however, since a speculatively-driven chart is much easier to handicap. In fact, the gold futures chart has very much behaved as an astute trader would expect if he/she would just take a step back and look at the bigger picture.

The same chart just dropped a big hint with this week’s plunge.

Crossing the Line

For those traders who are fans of, and familiar with, Fibonacci retracement lines, gold’s outlook can be summed up like this: Now that the 50% retracement level at $1,333.60 has been broken, the next likely floor and reversal point (the “target” price) is the 61.8% retracement line at $1187.90. That level was also a confluence of support and resistance back in 2010, making it an ever more potent line in the sand.

For those who aren’t familiar with Fibonacci lines, here’s the deal: Traders collectively tend to draw — and trade — the same mental lines in the sand over and over again. They don’t even consciously know they’re doing it, but they still act on them all the same. Those proverbial “enough is enough” points are Fibonacci lines. (That’s the simplified version. Here’s the full explanation.)

As for what that means to gold right now, the slide under the $1,333.60 mark pulled gold futures under the 50% retracement line … a retracement based on the span of the entire 2008-2011 rally. The next Fibonacci line is $1,187.90, which would translate into a relatively typical 61.8% retracement of the 2008-2011 rally. We should find support there — and once we do, the slightest perk up from gold will verify that’s a buy-worthy floor for instruments like the SPDR Gold Trust(GLD), the Market Vectors Gold Miners ETF (GDX), or perhaps your favorite gold miner.

Just for the record, odds are good we’ll see something of a dead-cat bounce from gold today, which may even bleed into next week. Don’t mistake that for a recovery. That’s just the shorts covering their positions to lock in profits, and perhaps a few bold buyers hoping the worst is over. Unless gold can actually move back above the $1,395 mark, we should see a rollover and a renewed move all the way back to the 61.8% Fibonacci retracement level near $1,187.90. ...

Bogle wrote a letter to the editor. Here's an excerpt: Citing Benjamin Graham as the first "hedged fund" operator is an especially unfortunate example. "The trick," Mr. Rice writes, was Graham's "clever way to make money . . . whether it [the market] continued to rise, or started to fall." ...

One of my pet peeves is the way that insiders -- whether corporate CEOs, hedge fund managers, or elected politicos -- capture compensation (or credit) for normal cyclical gains they had little or nothing to do with.

This is the approach favored by the Crony Capitalists — those people pretending to be free market participants, and who merely pretend to be creating value. They are taking credit for structural successes that would have occurred with or without them. What they are actually doing is capturing value, not creating it — and then transferring it from its true owners (shareholders/investors) to themselves.

This is wrong; it is legalized theft.

If you want to see a good example of how CEOs transfer shareholder wealth to themselves, a good place to start is Roger Lowenstein’s 2004 book, Origins of the Crash: The Great Bubble and Its Undoing. The section on CEO compensation is astounding; these guys were essentially getting wildly overcompensated for being CEOs during a bull market. The prime example was the CEO of Heinz, who gave himself (with the tacit approval of his Board ofCrony Directors) a $90 million bonus. And this was back in the early 1990s, when $90 million was real money.

Earlier this year, Goldman Sachs Asset Management announced that it would launch a new mutual fund that — apparently — will bring the joy of hedge fund investing to the masses. For as little as $1,000, the Multi-Manager Alternatives Fund (GMAMX) allows mom-and-pop investors to put their life savings into some of Wall Street’s riskiest and most expensive products. This “fund of funds” will, according to its prospectus, let investors gain exposure to the trading strategies of hedge funds...

Big public pension funds reaped strong returns from their hedge fund portfolios in 2012, with most of them handily surpassing their own benchmarks and well-used industry indexes. The hedge fund portfolios, for the most part, achieved close to what chief investment officers wanted, despite a 1,500-basis-point difference between the best and worst performers, according toPensions & Investments' analysis of the returns of 19 hedge fund portfolios from 17 U.S. public retirement plans with aggregate hedge fund assets of $60.7 billion.

Something must be in the water over at 399 Park Avenue, where Daniel Loeb's hedge fund Third Point is headquartered. His Third Point Ultra fund has already gained 12.42 percent this year through the 13th of March, according to data from HSBC’s Private Bank.

The portfolio added 3.3 percent alone between March 1 and March 13. By comparison, hedge funds have returned about 4 percent year-to-date, according to HSBC.

The roughly $1.7 billion Ultra portfolio is a levered version of the firm’s flagship Offshore fund, which manages about $5.7 billion and has gained 8.5 percent over the same period. ...

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Duke Energy CEO Jim Rogers still facing issues as tough year nears an end (BizJournals) In late 2011, Jim Rogers seemed almost golden. He was about to close his last big merger deal. He was poised to take a corporate chairmanship tailored to his penchants for energy policy and reshaping the utility-business model. He was ready to bask in the spotlight of a national convention he’d helped bring to Charlotte. But by late 2012, it’s evident things have not gone so well. “It has been a year of challenges,” the Duke Energy Corp. chief executive concedes. “Nothing in life is perfect.” Dan Fogel, associate director of the Wake Forest University Business School’s Center for Energy, ...

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Hedge Fund News: David Tepper Value ...Billionaire David Tepper's Latest Stock Picks (InsiderMonkey) Appaloosa Management is a value hedge fund managed by billionaire David Tepper (whose name might sound familiar to any recent attendees of Carnegie Mellon’s Tepper School of Business). The fund has an estimated $16 billion under management. We have gone through Appaloosa’s 13F for the third quarter of 2012 and picked out... Continue to read.

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BMW and Pininfarina are two of the most tradition-swathed names in the motoring world. Each is a byword for cutting-edge technology, style, dynamics and aesthetics. With the BMW Pininfarina Gran Lusso Coupé, the two

time-honoured companies are unveiling the outcome of their first collaboration at the Concorso d’Eleganza Villa d’Este 2013. The BMW Pininfarina Gran Lusso Coupé is a one-off and represents the exclusive interpretation of a luxurious BMW Coupé as seen through the eyes of Pininfarina.

The precious metals have been weak again in May with gold falling 4.4% despite this weeks’ recovery. Silver is down 7% and platinum by 2.6%. Palladium has recovered from recent weakness and those who accumulated on weakness are set for the best month since November after it surged 6.6% in May.

Weakness in gold and silver is leading to robust demand internationally as store of value buyers accumulate gold and silver on this dip. This is particularly the case in Asia where premiums remain robust and supply demand imbalances remain. ...

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U.S. manufacturing growth picked up in March as new orders increased and hiring quickened, closing out the best quarter for the sector in two years, a survey showed on Monday. Financial data firm Markit said its U.S. Manufacturing Purchasing Managers Index rose to 54.6 last month from 54.3 in February. A reading above 50 indicates expansion. Output increased, though the rate of growth slipped to 56.6 from 57.3 in February...